Executive Summary
Over the past year, the economy has weakened, but the “strength” in the labor force has kept us from recession. However, recent revisions in the Bureau of Labor Statistics’ “new jobs data” bring into question the reliability of the BLS data. Revisions showed that “new jobs data” from April 2023-March 2024 were overstated by 818,000! The August 2024 report revealed June new jobs were overstated by 61,000. These are not small revisions. The unemployment rate has moved from 3.8% to 4.2%. Please proceed to The Details.
Please proceed to read The Details below for more information.
“It’s easier to fool people than to convince them they have been fooled.”
–Mark Twain
The Details
Over the past year, the economy has weakened. The main reason many economists have refrained from declaring a recession has been the “strength” in the labor force. However, it now appears the labor force is succumbing to the weakening economy. Each month, the Bureau of Labor Statistics (BLS) publishes their Employment Situation report, providing extensive detail about the employment picture. And it is this “picture” that has provided the basis for the economy not yet tipping over. It is now apparent that either the BLS’s methodology is inherently flawed, or the data is purposely being skewed.
As it stands, the results are confusing and often contradictory. There are two surveys used to compile the report data, the Household Survey and the Establishment Survey. The results from the Household Survey are used to calculate the official Unemployment Rate. The Establishment Survey is used to report the monthly change in jobs. As can be seen in the following graph, these two surveys are not always in synch. The report below illustrates the nonfarm payroll numbers obtained from the Establishment Survey (in red) far exceed the employment level as shown in the Household Survey (in blue).
It is the monthly new jobs number (from the Establishment Survey) that stock market investors await each month with bated breath. It might come as no surprise to some readers that this number has risen more rapidly than the Household results. But that is not even the most concerning fact. The survey results are “revised” annually to better reflect reality. Recently, the BLS revealed that the previously reported new jobs numbers for the period April 2023 through March 2024 were overstated by a whopping 818,000 jobs! Last week, when the August report was issued, we discovered that the previously announced June new jobs number of 179,000 was overstated by 61,000 jobs. And in July new jobs were overreported by 25,000 jobs. These are not insignificant revisions and should cause serious concern to the BLS as to the reliability of their data.
For those wondering how “strong” the labor picture really is, here is a summary for the past year (albeit from the BLS): the number of employed workers has decreased (Household Survey) by 66,000. Multiple job holders have increased by 458,000. Foreign born workers have increased by 1.24 million, while native born workers have decreased by 1.32 million. The unemployment rate has increased from 3.8% to 4.2%.
Those following markets and the actions of companies closely know that many large companies have already announced a significant number of layoffs. And that is before an “official” recession has been declared. It is clear the employment situation is now weakening. While many now question the reliability of the data, real-life company data is indisputable. Is the other shoe dropping?
The S&P 500 Index closed at 5,408, down 4.2% for the week. The yield on the 10-year Treasury Note fell to 3.72%. Oil prices decreased to $68 per barrel, and the national average price of gasoline according to AAA fell to $3.27 per gallon.
© 2024. This material was prepared by Bob Cremerius, CPA/PFS, of Prudent Financial, and does not necessarily represent the views of other presenting parties, nor their affiliates. This information should not be construed as investment, tax or legal advice. Past performance is not indicative of future performance. An index is unmanaged and one cannot invest directly in an index. Actual results, performance or achievements may differ materially from those expressed or implied. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy.